Subscribe via email

Subscribe To

About Me

Saturday, June 23, 2012

Charting the Fed's Effectiveness

There's definitely a correlation between mortgage rates and the Federal funds rate. However, correlation does not prove causation. Let's dig further.

Click to enlarge.

Look at that. Mortgages are even *more* tied to 3-month Treasury bills. The correlation has gone up. It's almost like the Treasury market overall is smarter than the Fed. Who would have guessed?

This thought process begs the next chart.

Click to enlarge.

There is an extremely high correlation between the 3-month Treasury bill rate and the Federal funds rate. It isn't perfect though. Why is that?

Click to enlarge.

In my opinion, it is because a small group of detached people sitting within a closed room inside an ivory tower can do some incredibly stupid things if they put their minds to it. This is just a theory of course.

From the 19th century it has been used to designate a world or atmosphere where intellectuals engage in pursuits that are disconnected from the practical concerns of everyday life. As such, it usually carries pejorative connotations of a wilful disconnect from the everyday world; esoteric, over-specialized, or even useless research; and academic elitism, if not outright condescension.

U.S. house prices have risen by nearly 25 percent over the past two years, noted Bernanke, currently chairman of the president's Council of Economic Advisers, in testimony to Congress's Joint Economic Committee. But these increases, he said, "largely reflect strong economic fundamentals," such as strong growth in jobs, incomes and the number of new households.

"In my opinion, it is because a small group of detached people sitting within a closed room inside an ivory tower can do some incredibly stupid things if they put their minds to it. This is just a theory of course."

Disclaimer

I am not a financial advisor. I am not offering investment advice. Although I have attempted to provide accurate information, that's all it is, an attempt. Please do not trust the opinions, numbers, and/or charts of a random anonymous blogger on the Internet. Make your own opinions. Make your own charts. Do your own due diligence. Thank you.